BEST PRACTICES » Independent members in the Board of Directors » Board of Auditors » Gerdau Executive Committee » Strategy and Excellence Committees » Integrated Risk Management » Disclosure Committee » Compensation and Succession Committee » Gerdau Business System » Tag Along Right (100% Preffered and voting shares) » Bovespa Level 1 » New York Stock Exchange (NYSE) » LATIBEX Independent members in the Board of Directors Transparency, accountability and fairness are the principles that guide the companies that adopt the best corporate governance practices. With the aim of improving their relationship with shareholders and the quality of the management of the business, Metalúrgica Gerdau S.A. and Gerdau S.A. have elected, at the General Shareholders' Meetings, three independent members for their Boards of Directors. These officers are independent and contribute to the accomplishment of the Board's routines, which consist mainly of the development strategies, approval budgets, establishment of investment and dividend policies and the definition of the capital and shareholding structures of the companies. According to the "Code of Corporate Governance Best Practices" outlined by the Brazilian Institute for Corporate Governance (IBGC), the presence of independent members ensure professionalism, independence and transparency of the Boards. Board of Auditors With the objective of improving their relationship with the capital markets and shareholders, and in compliance with Law No. 6.404/76 (Brazilian Corporate Law), in 2001 Metalúrgica Gerdau S.A. and Gerdau S.A. instituted a Board of Auditors (Conselho Fiscal; see section 161 of Law 6.404/76) comprising five and three effective members, respectively. The role of the Board of Auditors is to monitor and oversee the actions of management and the compliance with legal obligations, advise and issue opinions on the administration's reports, advise on motions proposed by the Board of Directors, convene shareholder's meetings whenever necessary and analyze and issue opinions on the financial statements. The members of the Board of Auditors are elected at the General Shareholders' Meetings for a one-year term and may be re-elected. In accordance with the provisions of the U.S. Sarbanes-Oxley Act, which seeks to increase transparency and the commitment of management to internal controls and to the disclosure of information, and which also applies to foreign companies listed at stock exchanges in the United States, Gerdau S.A. chose to expand the responsibilities of its Board of Auditors instead of creating an Audit Committee. Thus, on April 28, 2005, the General Shareholders' Meeting approved changes in the Company's bylaws concerning this issue. The new responsibilities include: to report and inquire into errors, fraud and trespassing, as well as to suggest corrective measures; supervise the hiring of services and the relationship with independent auditors; issue opinions on the internal accounting and audit controls. On that same shareholders' meeting, a financial expert was also elected for the Board of Auditors. Gerdau Executive Committee The Gerdau Executive Committee is in charge of managing daily business. It acts as the link between the Board of Directors and the Group's steelmaking operations. The Gerdau Executive Committee is responsible for six business operations defined according to product line and geographical location, through the following companies: Gerdau Aços Longos S.A. (long steel operations - Brazil), Gerdau Aços Especiais S.A. (specialty steel operations - Brazil), Gerdau Açominas S.A. (Ouro Branco mill - Brazil), Gerdau Ameristeel Corporation (Canada and the United States), Gerdau América Latina S.A. (Latin American operations) and India. The Gerdau Executive Committee is also responsible for the main processes that are operated throughout the Group, such as finance, accounting, human resources and planning. Committee members work together in search of greater synergy between operations and individually with a focus on the management of each business and process. Gerdau Executive Committee members are elected at Board Meetings for one-year terms and may be re-elected. Strategy and Excellence Committees The Strategy Committee was created to provide strategic support to the Board of Directors, and consists of officers who contribute to the achievement of increasingly higher levels of performance. The Committee analyzes the current scenario and the opportunities for growth and defines the Group's long-term business focus. The Excellence Committees provide support for the corporate processes to develope the best management practices and stimulate the exchange of know-how among the Group's business units. Integrated Risk Management Gerdau has been developing actions to consolidate and improve risk management practices in its operations since January 2004. The initiative of Integrated Risk Management strengthens best corporate governance practices, formalizes risk management planning and defines the responsibilities of areas such as Risk Management, Process Management, Internal Audit and other relevant areas. Additional information regarding the Integrated Risk Management Project may be obtained from the section on Corporate Governance in this website. Disclosure Committee In compliance with the provisions of the U.S. Sarbanes-Oxley Act, which seeks to increase transparency and the commitment of management to internal controls and the disclosure of information, Gerdau S.A. has setup a Disclosure Committee witch includes the CEO, Investor Relations Director, Accounting Director, Legal Director and Financial Director. This committee oversees and reviews all materials for which there is a legal disclosure requirement and meets regularly in order to review all published data. Compensation and Succession Committee The new Corporate Governance structure introduced in 2002 Gerdau established a Compensation and Succession Committee to guide the Board of Directors in preparing hiring and compensation policies for officers and employees, incentive compensation plans and other related issues. In this committee half of the members are independent. Gerdau Business System The Gerdau Group works continuously to improve its practices, in line with the best world standards. The internal management systems are being consolidated into the Gerdau Business System (GBS), a crucial tool for the development of operations and future business. The Gerdau Business System compiles the Group's best practices in all of its business processes. The GBS defines the necessary structure and methodology to ensure business sustainability, based on the PDCA model, to support the development of operations and to enable the speedy integration of new businesses and acquisitions. The GBS was created as the basis for the construction of a world-class, international steel company in a moment of internationalization and strong expansion. Tag Along Right (100% Preffered and voting shares) The Brazilian Corporate Law (Law no. 6404/76), amended by Law no. 10.303, of October 31, 2001, introduced changes in the rights of minority shareholders. One such change is the requirement that new majority shareholder, in the event of a control trade, make a tender offer for the acquisition of voting shares at a price that is at least 80 percent of the consideration paid per voting share in the controlling block. With the objective of adapting the bylaws of both Metalúrgica Gerdau S.A and Gerdau S.A. to this new situation, the shareholders, in General Meetings held on April 30, 2002, approved the 100% tag along right for all shareholders, both common and preferred. Therefore, all the shares in these companies have the right to be included in the eventuality of a control block trade at a price equal to the consideration paid for the voting shares in the controlling block. With this change, the Gerdau Group sent another strong indication of its commitment to equal treatment to all its shareholders and to the strengthening and the development of the capital markets. Bovespa Level 1 The São Paulo Stock Exchange BOVESPA names as "Distinct Corporate Governance Practices" a set of rules that must be followed by companies, management and controlling shareholders and that are considered relevant to enhance the perception of a stock and, as a consequence for a greater appreciation of shares and other assets issued by the companies. To adhere to these practices underscores the company's efforts towards improving the relationship with investors and increases the potential for appreciation of its shares in the market. The companies that join the BOVESPA Level 1 Corporate Governance program must commit mainly to improving the disclosure of information to the market and to increase their shareholding dispersion. The Gerdau Group, reaffirming its historical commitment to transparency, corporate governance and the strengthening of the capital markets first joined BOVESPA's Level 1 Corporate Governance program with Gerdau S.A. Metalúrgica Gerdau S.A. also joined the Level 1 program two years later. Both companies comply with the requirements of Distinct Corporate Governance Practices, which include: » Maintenance of a minimum free float of at least 25% of the company's capital stock; » Make public offers using mechanisms that capital dispersion of shares; » Improve quarterly information disclosure, including the presentation of consolidated financial statements and special reports; » Report trading operations of assets and derivatives issued by the company by controlling shareholders and executive officers; » Disclose an annual calendar of corporate events; » Present cash flow statements; » Hold public meetings with analysts and investors All these rules are consolidated in a Listing Regulation to which adherence is voluntary. The commitments made by the companies, their controlling shareholders and officers are set forth in an agreement between these parties and BOVESPA. New York Stock Exchange (NYSE) In 1997 the Securities and Exchange Commission (SEC) approved the Gerdau S.A. Level I American Depositary Receipt (ADR) program, as well as the Company's listing on the NYSE. On March 10, 1999, Gerdau S.A. obtained the registration for the issuance of Level II ADRs and began trading on that stock exchange. ADRs enable American investors to buy shares of non-American companies. ADRs also grant foreign shareholders the same economic and corporate rights of Brazilian shareholders of Gerdau S.A. The issuance of Level II ADRs registered at the NYSE means greater visibility for Gerdau in the U.S. market and allows a reduction in the cost of raising funds in that market. This level requires the filing of all registration forms described in the 1933 Securities Act and compliance with all disclosure requirements of the 1934 Securities Exchange Act. The Depositary agent of Gerdau ADRs is The Bank of New York (BoNY), which is responsible for the maintenance of records, issuance, and cancellation of ADRs and the payment of dividend to the holders of these stocks. LATIBEX Since December 2, 2002 preferred shares of Gerdau S.A. are traded at the Latibex, a section of the Madrid Stock Exchange devoted to Latin American companies with stocks quoted and traded in euros. The stocks of Latin American companies are traded and paid for as the stocks of any other Spanish company, with straightforward and efficient access to the European capital markets, overcoming operational and legal complexities and reducing risk. Since December 2, 2002 preferred shares of Gerdau S.A. are traded at the Latibex, a section of the Madrid Stock Exchange devoted to Latin American companies with stocks quoted and traded in euros. The stocks of Latin American companies are traded and paid for as the stocks of any other Spanish company, with straightforward and efficient access to the European capital markets, overcoming operational and legal complexities and reducing risk.